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Is Bitcoin Still A Non-Obvious VC Investment?

This week Redpoint Ventures partner, Tom Tunguz penned a pieced titled “The Fastest Growing Areas Of Startup Investment In 2015”. The post examined trends in the major categories of startup investment from 2012 through to mid-2015.

Bitcoin Issue 27 copy

The piece generated a fair amount of interest in the Bitcoin community (for example seeHERE, HERE and HERE) as Bitcoin was the fastest growing sector (151% CAGR) according to the data. However, as a percentage of dollars invested, Bitcoin still only accounted for a minuscule piece of the overall pie (0.18% of total VC dollars invested).

A common thought in the world of venture capital is that non-obvious investments are the ones that yield the biggest returns and to generate 10x+ returns that’s where you should go. The data suggests that Bitcoin is becoming a more obvious vertical for VCs. If you’ve been keeping an eye on investment news this probably isn’t a big surprise – with many well known VCs (e.g. A16Z, USV) and corporate investors (e.g Goldman Sachs and NASDAQ) piling into the sector.

With most bets in the space still heavily weighted towards ‘on-ramp’ companies, the growth in infrastructure and ‘blockchain’ based startups is still to come. Further, the overall share of investment dollars still has a lot of growth left in it – which is probably unsurprising given that most companies are still raising seed rounds.

Regardless of how you see it, Bitcoin (and blockchain tech more generally) is still a hot category and it’s only going to get hotter. So if you’re an investor, it’s time to grab your chips and make some bets.

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Bitcoin Is Not A Movement. It’s An Application Stack

For some reason I tend to be a libertarian magnet. Every time I speak at a Bitcoin event I’m always approached by all the crazy libertarians in the room. In the main, they ask polite questions about where the world of Bitcoin is headed and what the legal landscape might look like in the coming years for Bitcoin. However, there always comes an uncomfortable moment where the question of the Bitcoin ‘movement’ is raised. You know the “Bitcoin is going to bring down governments” and “I use Bitcoin because the government can’t take it from me” comments – if you haven’t heard either of these you haven’t been to enough Bitcoin related events.

I can see why people think I might buy into this view of the world. I’m incredibly bullish on b/Bitcoin. On both fronts, I believe it’ll have a profound impact on the way a number of industries are organised – everything from the law to the way machines interact with each other. However, emphatically, I don’t believe in the ‘movement’.

I don’t think governments will topple (I think they’ll embrace it), I don’t think banks are at risk of being displaced (I think they’ll be the biggest adopters of Bitcoin/blockchain), I don’t think you’ll see it become the world’s reserve currency ( I think it’ll do for internet commerce what Paypal initially did – but at even larger scale).

Put simply, Bitcoin is not a movement. It’s an application stack. To use an oft quoted line (or in internet speak, a meme), it’s the “TCP/IP of value”.

Take solace my libertarian friends, Bitcoin is going to be massive – but just not in a ‘the global financial apocalypse is coming and I’m insulated by owning bitcoin’ kind of way. It’ll be a movement like the internet was a ‘movement’. It’ll functionally change the way we move value in the online age. However, no government will be brought down by the tidal wave of Bitcoin. It’ll simply ride the wave.

So if you see me at a conference or a meetup come over and chat. I love hearing views on where the hell Bitcoin is headed and how it’ll change the world. But just so you know, I don’t think bitcoin is going to bring down ‘our corrupt capitalist governments’ – I just think it’ll redefine how the world transfers value. Hopefully that’s enough of a ‘movement’.

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The State Of Bitcoin: A Summary

This week Coinbase released a great little summary of Bitcoin metrics as at July 2015. Overall, it’s an interesting overview of some of the more important Bitcoin metrics. Here’s a quick TL;DR of the piece.

  • Understanding bitcoin price movement is a function of the period taken. The year to date, bitcoin is down 9% – but is up 213% over a 2 year timeframe (as most bitcoiners will be only too happy to tell you).
  • Coinbase currently has 2.4M users and 3.1M wallets on their platform. This would definitely make them one of the biggest wallet providers in the world.
  • Over the last year there has been a 94% increase in monthly transactions on the Bitcoin network (worth noting that this stat controls for the recent spikes due to load testing and spam on the network).
  • Overall, 47% of Coinbase wallet holders are now from countries outside the US. With Hong Kong leading the adoption charge with 283% user growth.
  • Aligned with other reports, a large portion of users are actually over 30. More specifically, 34% of Coinbase users are over 35.
  • In what I think is one of the more interesting stats to come out of the report, Coinbase now has more than 7,000 applications built by developers on top of the Coinbase platform. This likely makes Coinbase one of the biggest Bitcoin application platforms out there.
  • What I personally think is the most important measure to keep an eye on with respect to Bitcoin growth; the Github repo reference count, is currently at 6,109. Interestingly, the article notes that by comparison, there were only 2,318 repositories referencing Paypal. Although, I don’t think this necessarily means too much, it is an interesting comparison.

Overall (unsurprisingly), the piece paints a positive picture of where Bitcoin is at. It’ll be interesting to see where the price (and general sentiment) heads in the next few months with Greece, China, BIP-66 and the ever looming hard fork… but these are all probably topics for another Friday 😉

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The Blockchain Has Friends

Last night at FinTech Melbourne we hosted Australia and New Zealand Bank’s CTO – Patrick Maes. Beyond being a fascinating discussion about the Australian FinTech landscape, one of the things that struck me about the conversation was how bullish his comments were regarding distributed ledger and blockchain technology. In fact, Maes noted that blockchain technology was one of the only true innovations in the payments space over the last 2,000 years – which is a significant comment given how nascent this technology actually is.

In recent days, with the issues the Bitcoin blockchain has faced with the introduction of BIP-66, it’s easy to forget the impact the technology has had in opening up the minds of many senior executives in the banking space as to how a new financial payment stack might actually look.

The reality is that still writing code in COBOL or FORTRAN and running your own server farms as a bank isn’t a sustainable technology model. Regardless of whether you’re a Bitcoin or a permissioned ledger maximalist, the banking world is moving rapidly towards a future where some form of distributed ledger becomes a major layer in the banking technology stack. Further, it really looks like this change may come from the upper management layers of banks – which is really exciting.

Viva la blockchain!

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